On November 17, decentralized exchange (DEX) dYdX found itself compelled to tap into its insurance fund, allocating $9 million to cover user liquidations.
Antonio Juliano, the founder of dYdX, has characterized these losses as a result of a “targeted attack” on the exchange.
According to information shared by the dYdX team on X (formerly known as Twitter), the v3 insurance fund was employed “to address deficiencies in liquidation processes within the YFI market.”
This move came in response to a significant drop in the Yearn.finance token, which plummeted by 43% on the same day, following a remarkable 170% surge in the preceding weeks.
This sudden and drastic price decline gave rise to concerns within the crypto community, with some speculating about a potential exit scam.
The purported attack specifically singled out long positions in YFI tokens on the dYdX platform, leading to the liquidation of positions valued at nearly $38 million.
Antonio Juliano suspects that both the trading losses experienced by dYdX and the sharp YFI decline were the consequences of market manipulation.
He stated, “This was pretty clearly a targeted attack against dYdX, including market manipulation of the entire $YFI market.
“We are investigating alongside several partners and will be transparent with what we discover.”
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Juliano reassured users that their funds remained unaffected by the incident, emphasizing that the v3 insurance fund still retained $13.5 million.
He also pledged to conduct a comprehensive review of their risk parameters, potentially implementing changes to both v3 and the dYdX Chain software as needed.
In the aftermath of this profitable trade, the YFI token’s market capitalization suffered a staggering loss of over $300 million.
This development led to speculations within the community, with some raising concerns about the possibility of insider involvement in the YFI market.
Some users alleged that 50% of the YFI token supply was concentrated in 10 wallets controlled by developers.
However, data from Etherscan suggests that some of these wallets belong to crypto exchanges.
Despite efforts by Cointelegraph to seek comments from dYdX and Yearn.finance, neither party has responded as of yet.
The incident has brought to the forefront the challenges and vulnerabilities faced by decentralized exchanges in the cryptocurrency ecosystem.
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